tv [untitled] June 22, 2012 12:30pm-1:00pm EDT
copyright system are subject to genuine tension and they're generally short lived and from the shakespearean they need to be longer, but you need to be cautious about the length of the patent. the extension act is in my mind, a kind of mistake and for the most part we keep to the privatized model and the better we will be. >> when you swing over to the other side of the line with respect to the question of how we deal with technology under network industries, again, for a whole variety of reasons it's always been the dominant and correct position that when you're dealing with institutions that have monopoly elements and cannot form competitive types of situations and that you may have some system of government, and in this particular situation, the choice of methods will make a huge difference. i'll give a, which created
trillions of dollars in losses because it managed to get the wrong solution. i'm thinking of the 1996 telecommunications act because to the extent that you're trying to figure out how you run one of these systems. if your fundamental poft -- is the local exchange carriers will face forever which means you have to be complicated in the way that you have to allow one company to buy network elements from another, you manage to capture the elements of the essential technology in 1996, but by 1998 it was quite clear that the implicit assumption of the act with the dominance of the exclusive power of the local exchange carriers went wrong and when you started to allow the government to force the sale of the elements of bargain prices you created all sort of distortions in the market which in the end helped nobody. so the great question that you have to worry about when dealing with this market is exactly the question what's the form of regulation that you want. and in that case, instead of
having the government supervise enter connection agreement which is could have been done relatively easy. when weir now in a new age and what happens in this new particular age is with the decline of the local monopolies under these exchange characters, what you end up with is a system where the entry now becomes a really plausible type of arrangement and that is instead of trying to force people to interconnect, you can let people build out other kinds of networks and in the course of using those particular networks enter into competition one to another, where in many cases there may be a need for interconnection, but in many cases there may not be and as for example, a lot of the networks which would be for huge amounts of data and so forth. >> what's the appropriate system of regulation, and i think the fundamental posture that you want to adopt runs as follows and if you have a conceivable way of new technology allows for the facility of creation of competitive network and you want
to treat it with a single supplier and you want to treat it as a competitor industry and the composition of the traffic that they take over the networks and the prices that they'll pay for question and this means that if these alternative networks are available the last thing you want to do is to impose the network neutrality requirement on the systems because that becomes a wealth transfer from those people who put the pipes together for those people who want to push content over. one of the things we can say about a net neutrality system is that the value of the information is relatively marginal and the cost of providing it is relatively low this their isn't much to be lost by creating a pro rata system, and that's what many firms will do. if it isn't worth their while to engage in forms of discrimination. as weave seen from the at&t announcement that it was throwing in the towel and it would start to put limitations
on the maximum amount that any given customer can throw to a networks there are capacity restraints even in the most qaa patience network because as they make the pipes larger, there are people that will think to send larger things. nobody would have sent movies over the pipes, but now that you have it the company will come. at this particular point the differentiation in rate seems to be extremely important because you'd like to be able to do is give higher valued services higher prices so that the network on the other side can start to organize itself. so the difficulty that you get in running one of these things is you have to first answer the question of is this something that looks remotely like a comparative industry and then two or three characters -- carriers, i'm willing to say yes. one carrier and one clearly not and so forth, and that the dominant strategy in this particular area is not to try to have heavy-handed government regulation which sets prices and mandates and entry in so forth that would make the technology
industry look like the health care industry that they talked about at lunch and we'd have mandatory service and so forth. what you want to do is exactly the opposite, to try to find ways to expand the opportunities of entry so that you can reduce the number of opportunities or needs for having direct kind of control, and i think, in effect, that the way in which this particular choice will be adjudicated in the next generation will determine for better or worse, whether or not this nation or other nations will be able to keep up the energetic drive. every time you regulate tough stuff on the guys who are the pipes, you're going to help the content providers to some extent, but you will retard investments on the other side. i think voluntary arrangements will figure out what is the optimal way to structure the interaction and we don't want to go to the regulatory state to run that issue. >> most people you cut off mid-sentence, richard, you have to cut off mid-paragraph. that's a complement, by the way.
>> that's all right. >> how should the government think about regulating technological progress, should it? what's the rule? >> a couple of general observe eggs and s a ations and number one, technology can benefit tremendously from government involvement and regulation can be part of that involvement and if you think about it just in terms of regulation you obscure important points and when you start talking about the framework of regulation, you are in this paradigm where technology is a private good and the technology is what is the government going to do to restrict your private use of that particular technology and what i think that obscures is fact that technology is very often a public good. that is something that will be underproduced by the private market and so to give back to the network that matters the most around here, you talk about the internet while that began as a creature of government-funded research. it became the platform in this piece of infrastructure that lay the groundwork for all sorts of innovation that nobody could
have possibly foreseen in the '60s and '70s when the government was funding the research that could have led to the internet. nobody could have predicted the innovation that it was going to help foster and now once the internet grows up, you have problems that you have to deal with and one is network neutrality and so the question there is whether and to what extent we'll let the people who own the infrastructure adopt practices that are going to favor or disfavor certain types of data, applications, content or certain users. the stakes there are particularly high because that is where we decide whether the internet will remain an open platform where new people can innovate without permission and whether we are still going to see the kind of radical disruption that has marked internet technology, if you let incumbents let the rules there you're not going to get the innovation that you see where
you have an open architecture and unless somebody brand new comes in whether you have permission from the incumbents or not. when it comes to network neutrality and the innovation that's at stake, i asked is there a good market station there? i don't think there is and since there's no good market solution there, that's a good place where the government intervenes and its role is to kind of regulate to keep the -- keep the structure open so that new entrants can come in and you have room for new innovation that is not limited by what we already see on the internet. if you take a different question that the internet poses, one of privacy, you have a different question, i think kind of a different answer and the question there is whether you're going to regulate what information websites are going to collect and how they can use it. there, i see a much bigger potential for market-based solutions. i think you can think about disclosure and you can think about competition and whether
it's in technology or whether the development of applications that are better or worse at protecting your policy. there are barriers and the information costs are so high for users and a lot of the users don't fully understand the privacy implications of data collection. i think it's difficult for them to make trade offs and really make the balance that a market solution will require, but the fact is it's possible to imagine market-based solutioneds to privacy problems, so what do we see here, and and i think it is in some ways the best possible of all worlds and that is because the so-called do not track proposal you see is really much more like, well, we'll let people track and other people not track that it utterly confuses consumers. if you have regulations that ostensibly prohibit tracking and
has tons and tons of tracking. you lull the consumer into a false sense of security and complacency that prevents the market solution from implementing itself. so in that respect, i think that's an example where regulations can foul up what might otherwise be a perfectly plausible market solution and government regulation is aufsh at its worse when it takes on the pervasive and permanent oversight function. so i would say if you believe technology is a public good that is produced there is a symbiosis between innovators and the government and the model something more like seed funding than permanent oversight. i think government is at its best when it cultivates technology and then gets out of the way. number two is important because sometimes getting out of the way means not just government getting out of the way, but
government playing the role to make sure that incumbents do not stand in the way of new inventions and new innovations that will grow technology and develop it even further. thank you. >> so, mark, i actually am going pull you in a slightly different direction. >> i want to answer these questions. >> in some sense i'm hoping that i can get you to ground us in things that have been happening so we can be a little less abstract and it should come from conversations i've had with mark and you've often talked about the way in which there have been a regulatory turn in i.p. enforcement online and sopa, pipa, and you have government-mandated or encouraged efforts to have isps monitor the content of their subscriber's accounts and so on, and the whole debate over network neutrality over slightly different obviously reflects the same. so being more -- what do you make of all of that?
what does it tell us and can we address them and not regulate when we don't want? >> right. so i think the -- i think there's a consensus at least so far in the panel and my guess is along the whole panel, right? that starts from the idea that technologies flourish, and if in fact, people come up with the new idea with what everyone says won't work and launch it into the marketplace, we get a lot of benefit and people make a lot of money and we change the world. so what we don't want from government is a mother may i regulatory regime, right? if we have a regulatory regime that says i need permission to get into the market. i need permission to do this new thing and then we've got a problem so now we're relying for the government and not the
innovator do this and the one thing i want to add, i think, so far we're aligned with richard and i think richard will sign on to this, but it may lead us in different directions. we also don't want a private individual who's got a mother may i control over market entry. the problem is not just that governments might get to decide as gate keepers who enter the -- that they can have an incentive to impose the restrictions if they have the ability to do so and it's important to remember because it quite often gets lost in the rhetoric around some of these debates. it is not the case that private decision making is efficient. it is the case that market decision making is generally efficient largely because a bunch of stupid or greedy or short-sighted private people who make the wrong decisions get thrown out by other people who make the right decisions, right? so for the market for private
decision making to work there's got to be a market that's competitive, and if we have a mother may i regulatory regime, either government imposed or incumbent imposed we're not going to get that. so to get to the specific examples of that larry has raised, intellectual property, i think, is hard from this perspective because you can look at intellectual property as richard does and say it's a property regime. it's something around which parties can freely contract. property regimes if we're libertarians we think are good so more intellectual property is better. >> you can look at intellecta you will property rights and say this is a government restriction on what people can do with their own physical property and their own ideas and government restrictions on what people can do in a marketplace are bad and so libertarians ought to think i.p. rights are bad and the problem is it's both. all right? it is at once the sort of basis
around with which we can contract and allow the spread of new ideas and it is a government regulatory intervention in the marketplace that is designed to restrict in certain circumstances what people can do. what i think we've seen in intellectual property in both copyright and patent in the last few years and maybe in the last few decades is a turn increasingly towards the regulatory side of intellectual property and away from the kind of free and open licensing, and in part you see that if you look at the statutes. if you look at the copyright statute as it existed in 1975, and you compare it to the copyright statute that exists today. i think it's four or five times as long and there are long swathes of the copyright section that really are regulation and they regulate price and they determine what you can do and so on. the patent act is moving in that direction and it's most of the main provisions of the patent act have been common law in
their orientation. as richard indicates the new patent is a step toward the regulatory piece, but i think we see it not only in the statutory frameworks. i also think we see it in the way in which the law is being applied, so in copyright law after 15 years or so in which government more or less, sometimes by being physically restrained kept its hands off the internet we see greater and greater efforts pushed by copyright owners to try to impose regulations on what it is that people can do online because the copyright owners are rightly concerned that there's a lot of copyright infringement online, but rather than sue for copyright infringement the move has been instead to say, you know what? let's decide whether you can put your website up at all. the government has seized 450 internet domain names and all of
the speech contained thereon without ever getting an adversary hearing and the court order that says there's any copyright infringement here utsch in less the entire site is copyright infringement. that's regulation. and that's a mother may i regime. suddenly you're not in business because the government decided your website is not appropriate. we've seen efforts by the government and by private parties to push technology mandates. your website will be permissible only if you adopt certain types of filtering technologies to strip out improper material. and in those cases, too, i think we're moving away from a regime in which people are free to put what they want on the internet and toward the regime in which we try to impose the regulation. >> think we see something similar in patent law and it's here a little bit more troubling and here i know i'll disagree with richard. patent law is supposed to increase innovation, right?
the goal of the patent system is to encourage innovation by giving innovators economic rewards. it should worry us that our fastest-developing, most-innovative industries, the ones generating the most new innovations and the most money by and large hate patents, all right? they view patents as a tax, as a cost of innovation and not as a benefit of innovation and they view them that way i think largely because they are happily innovating in a world in which they are not restricted by the law and when the law shows up it shows up to limit what they can do and not to encourage them and help them to get economic -- so in the information technology industries and the software industries where there are a lot of patents and where most of the patent lawsuits are currently filed, the most innovative companies will tell grew, patents are largely a problem for us and the people filing those patent suits are either people not in the market at all
and the so-called patent trolls or the people on the market decline, right? yahoo is asserting against facebook happened this week. hey, there are a bunch of patents you have to license from us. the industries which really do need patent protection and the reason we need strong patent protection for certain parts of industries, the pharmaceutical industry and the bio technology industry need that patent protection, ironically enough, because they are regulated industries. the reason we've got to have strong patents in the pharmaceutical industry is because the government says you can't launch a pharmaceutical product until ten years of review have gone through and you spent $900 million and you have to have some way to get that $900 million back. how do you get that $900 million back? we guarantee you insulation from computation for some substantial period of time so you can pay back the money we made you pay in the first place. i think once you take that regulatory system for granted,
and it might or might not be a good thing, we're then stuck with some need for a patent system like that, but it's far from ideal, right? because it's moved us, ideal. it's moved us in a regulatory term. it's about limiting market entry in the service of furtherering government regulation. all right. the other piece of what larry asked me and we heard both from richard and tony is about network neutrality. i think thinking rabbit this mother may i frame work makes network neutrality a hard problem. it's a hard problem because it is unabashedly government regulation in the service of open interest. in the service of not letting people stand as gate keepers to prevent market entry. and i i'm really on board with the goal of network neutrality. the internet works precisely because if you have a new idea all you have to do is write code and put it on the network and no
one can stop you from doing it. we do not want to lose that. there are some powerful people who want to impose limits on that and they are by and large encompassed on these industries. that said, i'm also quite a bit nervous about the idea that the government is going to get it right if the government sets a series of rules designed to make sure that this openness continues. and so is hard tradeoff we're left with in this regulatory turn in some sense is the extent to which we impose structural limitations. we keep saying you know what? if you're in market a, you can't be vertically integrated into market b. or oppose bright line rules even though they are inefficient.
you can charge different prices but you can't discriminate against what you're charging. if we don't adopt those kind of rules, those structural separation rules the alternative may be either from the government or from powerful incumbents who don't have significant checks on them, a mother may i regime that we're seeing increasingly taking place. [ applause ] >> so we'll turn to peter. peter i also want to ask you a more specific question, although building off of what we've talked about so far. you've spoken quite a bit and in a lot of different contexts on innovation and technology and on the depth of innovation and certain industries. clearly i know you agree with this there's a lot of innovation that has happened and it's happening in the technology and computer space.
obviously you talked about other areas where innovation seems to be happening not so much anymore, transportation, agriculture, places where there were bursts of it in the past. the question is why not. is there something different about technology or are we doing something wrong? >> i think the why question is a very difficult one to answer. why questions are always hard to answer. but perhaps it is a good starting point to talk about the what. i believe the what is that we're in a world of in which we're no longer living in a technologically accelerating civilization at all. i date the end of rapid technological progress to the late '60s, early '70s. i think at that point something more or less broke in this country and the western world more generally that put us into a zone where there's much slower technological progress. i think there's an important exception with the computers, the internet and financial innovation. those are three areas -- two
areas computers and finance we have a lot of innovation in the last 40 years. finance is probably going to be less going forward. i'll get to that in a second. it is worth reflecting on how the other areas have slowed down and this is everything from transportation to energy to biotechnology, agro tech on and on down the line. and the most literal version of the question, are we moving faster is the transportation question. if you think about every decade people moved faster. faster sailboats, 19th sermgry faster railroads, then faster cars, faster planes. culminated with the concord in 1976. decommissioned in 2003 and today travel speeds are back to 1960 levels when you include the low tech airport security systems
that plague people. it's always these types of conferences to get the audience on your side since we've experienced it firsthand recently. the official reason for the slow down in transportation has to do with energy costs. at this point we have never recovered from the oil shocks of '73. oil prices today are higher than they were during the carter catastrophe of the late '70s. clean tech has become basically a toxic word for money losing investments in silicon valley. the nuclear industry was dead before fukushima and borderline immoral to encourage any undergrad to study nuclear engineering with a career as a future. if you look at warren buffett probably the saviest investor of our time. his single biggest holding is in the u.s. railroad industry, which is basically a massive bet
that the transportation and energy consumption patterns of the 21st century will involve a return to the 19th century. 40% of what gets transported on rail is coal. it's making a bet that after oil we're going to go back to coal and back to railroads. and i think there is a lot of reasons to think that's the basic trend that you're on with respect to that. the crisis of energy has broadened to a commodity crisis. there was a famous bet in the 1980s looking at a basket of commodities. simon happened to win the bet that decade. if you reran the bet from 1993 onword on abrolling decade basis, we're living in an increasingly world if which there is incredible scarsity because there's not enough innovation to keep up with things.
the green revolution of the '50s and '60sism increased worldwide food production. has decelerated in recent decades. when you see events going on in the world through this prism of technological deceleration it gives you a different perspective of what's going on. events in the mideast where the so-called green revolution is attributed to the wonderful information age that we're living in and how twitter is helping connect the world i think it has to be seen really as a direct result of massive technological failure. triggered by food prices that have been risen by 50% to 100% in the previous few years and basically it is what happens when a desperate people become more hungry than scared. biotechnology there should be tremendous progress in biotech. again, we see this pattern of significant failure about 1/3 as many drugs in the fda trial
today as there were 15 years ago. the big farma companies have started firing all the scientists who have not been able to get things through an increasingly onerous set of regulations. our expectations for the future in all these areas have been dramatically reduced. it would be inconceivable for the u.s. congress to declare a war on alzheimer's comparable to the war on cancer in 1970. even though something like 40% of the people aged 75 have stages of dementia. i think something like this can be repeated in many different areas. if you ask people whether they believe that we're living in a technological accelerating civilization, the straight forward answer is whether people think the next generation of americans were better off than the current generation and most people no longer think that is the case. i think that somehow forces us to call into question this narrative.
there's been an important exception in computers and finance. i would submit the why explanation for this sort of tale of two worlds of a computer and financial world where there's a lot of progress and everything elsewhere things were badly stalled is that basically computers and finance were fairly lightly regulate maryland the last 40 years and everything else was very heavily regulated. we are living in a world in which bits run regulated and the world of stuff is heavily regulated. when people say we need more engineers in the u.s. you have to start by the fact that almost everyone who went in engineering did very badly the last few decades with the exception of computer engineers. when i was at strapford many the 1980s it was a voir dire bad decision for chemical engineering, bioengineering and say nothing of nuclear engineering, petro troll yum engineering, civil engineering, the reason the rocket scientists went to work on wall street is not just because they